Penny Wise or Dollar Foolish

Forages vary in nutrient content and quality more than any other
feedstuff used by cattle, sheep and goat producers. Mid-Missouri hay
varies greatly by plant species, maturity at harvest, rained-on hay,
moisture levels when baled, and equipment operator skill.

Legume hay is typically higher in crude protein
(CP) than grass hays - but this is not always the case.
Vegetative fescue hay can have CP levels as high as 17%, while mature alfalfa can
be as low as 13% CP. Visual appraisal of the hay for color, seed heads
and aroma frequently can be misleading in determining hay quality. A
forage analysis is the only way to accurately evaluate hay quality.

A forage analysis will cost between $14 - 18 and
should be looked at as an investment in cost effective animal
performance. If the nutrient value of a hay source is underestimated,
the unnecessary supplementation increases feed costs. If the nutrient
value of a hay source if overestimated, then there can be a loss in
animal performance.

A quick example: While a .25 lb reduction in daily
gains on backgrounded calves does not sound like much, it will reduce
the weight of the calves by 7.5 lbs in 30 days. With a $70 calf price
this reduction in gains will reduce the sale value of a calf by $5.25.
At the more current $1.05 calf price this jumps the cost of the reduced
performance to $7.85/ head. In this example, the investment in a forage
test will be recovered on just 3 to 4 calves.

Extension agronomists have a habit of saying "Don't
guess, soil test". Be dollar wise and apply that comment to hay
analysis - "Don't guess, hay test". Hay probes are available in many
University of Missouri Extension Centers. A lab many Central Missouri
Producers use is: Custom Lab, Inc. based in Golden City, MO. Their
address is PO Box 391, Golden City, MO 64748 (417) 537-8337,
customlb@ipa.net

Winter Water for Livestock

We often focus on summer water as larger quantities are needed in the summer.
Winter water is equally important. Livestock will perform better with a
water supply that is at least 40° F. Limiting water intake can depress
animal performance more quickly than any other nutrient deficiency.

Often water can become contaminated, especially if livestock are allowed
access to a pond in one spot. Safety of livestock is also a concern if
livestock are allowed access to a frozen pond.

The objectives of developing a winter water supply include the following:

Provide some system for freeze proofing the water. This can include various
types of freeze proof waterers, some homemade, some purchased. Be sure
they will be as foolproof as possible. Now is a good time to check your
waterers. There is nothing more uncomfortable than working on a waterer
when it is sub-zero outside.

Insulate waterers to reduce problems with freezing. Make sure the insulation
inside the waterers is in good condition. Conserve heat by caulking the
base of automatic waterers and seal the access door with weatherproof
tape. Reducing wind exposure can also lower energy costs.

Be careful that electric water heaters don't have stray voltage. This will
cause a small shock to animals and will cause them to reduce the amount
of water they drink. See resources at the end of this article for more
information on stray voltage. Be sure electrical connections are proper
and are adequately grounded. (One good way to check for stray voltage
is to stand on the ground barefooted and lick the metal waterer -- NOT.)
There are more pleasant and sophisticated methods described in the web
link below. Local electricians can assist and some Rural Electric
Cooperatives have resources.

Float valves are important. Valves can be either full flow or restricted
flow. Full flow are usually used with small-reservoir, high-recharge
water systems. Restricted flow may restrict flow as much as 80
percent. They are usually used in large-reservoir, low-recharge
systems. Full flow valves may have a problem handling algae and
impurities in pond water. On some models the screen can be removed and
alleviate the problem, with others, it may aggravate the problem. Float
devices should be selected that will stand up to damage by livestock.

Clemson University researchers tested several types of floats in a
demonstration. They noted some big differences between the various
floats. The following were the types they tested:

Standard inexpensive over-the-counter floats

Standard toilet floats

High volume floats designed like a toilet bowl float

Two different commercial floats

Clemson researchers reported that the first two types of floats worked well for
low flow situations where very few animals were watering in a trough or
where you had oversized troughs. The only advantage to the standard
toilet bowl float was that it could be mounted in a tank that had an
underground feed supply line. This float must be protected from
livestock tampering.

Livestock Risk Protection (LRP) Available In Missouri

On July 29, 2004, the Federal Crop Insurance Corporation's (FCIC) Board
of Directors authorized expansion of all the LRP plans of insurance for
Swine, Feeder Cattle and Fed Cattle to include Missouri.

LRP insurance offers single-peril
price-risk protection to feeder, fed cattle and swine producers.
Producers are able to protect against declining prices by purchasing an
insurance contract with a specified coverage price. If market prices
fall below the specified coverage price, an indemnity is paid to the
producer. Because the LRP contract is market-based, coverage prices and
premiums change daily. Although LRP offers price level protection,
producers using LRP are still exposed to basis risk. Thus, successful
use of the contract by producers will require knowledge of local basis.
LRP is a revenue insurance program that is reinsured and subsidized by
the FCIC.

In 2004, the Risk Management Agency (RMA)
made some major changes. LRP will not be available when the option
market is open, so a person cannot compare current premiums and select
the least expensive.

Another change is a procedure to apply a
factor for certain cattle to allow insurance on heifers, Brahmas, dairy
cattle and feeder cattle at all weights. There will be daily sales
limits for the program as well as annual funding limits. Therefore the
maximum daily sales limit will be $1 million or as set by RMA. They have
put into place catastrophic measures that will shut down the market if
something extreme happens, such as the BSE announce in 2003.

Expected to grade select or better and yield grade 1-3 maximum head, 2,000 per endorsement and 4,000 head per year

Swine

A swine contract may be purchased for up to 10,000 head of hogs that are expected to reach market weight near the end of the insurance period. The length of insurance available for each Specific Coverage Endorsement (SCE) is from 13 to 26 weeks. The annual limit is 32,000 head per producer per crop year (July 1 to June 30). Swine rates are based on the CME Lean Hogs futures contract and indemnities are calculated using the USDA Agricultural Marketing Service (AMS) price upon which the lean hog futures contract settles.

How Livestock Risk Protection Works

Example: If the expected end
value of feeder steers after a 21-week period was $84.55/cwt, a coverage
level of 92% would yield a coverage price of $77.79/cwt ($84.55/cwt *
92%). If at the end of the 21-week period the CME feeder cattle price
index is higher than $77.79/cwt, no indemnity is paid. However, if the
index is lower than $77.79/cwt, an indemnity equal to the difference
between the coverage price and ending value of the CME feeder cattle
price index is paid. This example did not take into account the cost to
purchase the insurance. LRP does not guarantee basis, so it is important
for producers to understand and anticipate the basis in the markets in
which they sell cattle.

The LRP insurance program reduces the
downside risk for producers, but it does not eliminate all risks. It is
often compared to a put option contract, and there are similarities, but
they are not the same thing. Producers may buy LRP only on the number of
head they actually own. It is an insurance contract and once it is
purchased, it cannot be cancelled, as can be done with a put option.
Since it is insurance, it is clearly a tax deductible farm expense. LRP
does not cover sickness or death of animals or the possibility of rising
feed costs. Producers are subject to basis risk (the risk that basis
declines relative to their forecast used to create their expected
minimum sale price).

Another advantage to LRP insurance
contracts is that 13% of the premium is subsidized. Another subsidy
covers the administration of the insurance contracts and agent
commission, funded through RMA.

Producers interested in LRP should
contact a crop insurance agent and complete an application, which will
be submitted through the approved insurance provider to FCIC. Missouri
is just now getting crop insurance agents certified to sell LRP, so
check with your local agents. LRP sales should begin about October 1,
2004. However, sales will only occur when the Risk Management Agency (RMA)
announces daily prices on its website.

Taxation Tidbits: What's Your Social Security Strategy?

Farmers who report income on a cash-basis have a tremendous amount of
planning flexibility with regard to managing their Social Security costs and
benefits. Ironically, given the significance of self-employment tax to the
overall tax bill, few farmers take advantage of pro-active strategies for
optimizing their self-employment/Social Security costs and returns.

Different strategies should be utilized during
different phases of one's career. Early on, just meeting and maintaining
eligibility requirements for Social Security retirement, disability, and
survivor benefits will be of extreme importance. However, in the later phase
of one's career, you may want to focus on maximizing the returns on
retirement dollars, while maintaining your eligibility for Social Security benefits.

For farmers in this latter category, lumping
income and/or expenses so earned income is relatively high every other year
can yield substantially greater retirement benefits than utilizing the more
typical scenario of trying to level-out taxable income each year. Advantages
of this lumping strategy spring from the following factors:

Only the highest 35 years of indexed earnings
are utilized to calculate Social Security retirement benefits.

There is a maximum annual earnings subject to
the Social Security retirement tax.

The Social Security retirement calculation has a
regressive benefit rate schedule based on your indexed earnings.

To demonstrate this point, Farmer A and Farmer B
both age 66, retired in 2004 and started drawing Social Security benefits.
Farmer A and Farmer B have identical farming operations and farm income.
Farmer A had reported the maximum self-employment earnings from 1955 to
2003. Farmer B also reported the maximum self-employment earnings 1955 to
2003, except for two years 2000 and 2002. For 2000 and 2002 Farmer B shifted
his farm income and expenses to artificially report zero earnings for those
years, shifting that net income to 2001 and 2003.

Farmer A's monthly Social Security benefit was
calculated at $1,836. Farmer B, who avoided paying SE tax for 2000 and 2002,
had an estimated monthly Social Security benefit of $1,801. While Farmer B
will receive approximately $35 less Social Security per month, he saved
approximately $15,143 in total taxes for the tax years of 2000 and 2002. The
$19,976 of SE tax savings were offset by an estimated $4,833 of additional
federal income tax.

Given the amount of dollars involved and the
long-term consequences, you are encouraged to investigate and analyze
whatever strategy you're considering with your financial and tax
consultants. This is one of those situations where doing nothing is doing
something -- be proactive!

Ag Connection is published monthly for Central Missouri Region producers and is supported by University of Missouri Extension, the Commercial Agriculture program, the Missouri Agricultural Experiment Station and the MU College of Agriculture, Food and Natural Resources. Managing Editor: Kent Shannon.